Stocks ended lower in bumpy trading on Wall Street after the Federal Reserve raised its benchmark interest rate in its fight against inflation and signaled that more hikes lay ahead. As expected, the central bank raised its key short-term rate by half a percentage point Wednesday, marking its seventh increase this year. The Fed also said it expected to raise rates higher over the coming few years than it had previously anticipated. The S&P 500 fell 24.33 points, or 0.6%, to 3,995.32. The Dow Jones Industrial Average fell 142.29 points, or 0.4%, to 33,966.35. The Nasdaq fell 85.93 points, or 0.8%, to 11,170.89. Technology stocks, which had led stocks higher in the early going, were among the biggest drags on the market in afternoon trading. Apple fell 1.6%. Retailers and banks also fell, with Best Buy down 3.9%.
Recent signs that inflation, while still painfully high, has eased had stoked optimism on Wall Street that the Fed might signal the possibility of rate cuts in the second half of next year. But during a press conference following the Fed's two-day meeting of policymakers, Fed Chair Jerome Powell emphasized that the full effects of the central bank's efforts to slow the economy to bring down inflation have yet to be fully felt, the AP reports. "The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases, but it will take substantially more evidence to give confidence that inflation is on a sustained downward path," Powell said. Stocks had rallied ahead of the Fed's afternoon announcement, but shed those early gains.
The latest increase brings the Fed's key federal funds rate to a range of 4.25% to 4.5%, its highest level in 15 years. Fed policymakers forecast that the cental bank's rate will reach a range of 5% to 5.25% by the end of 2023. That suggests the Fed is prepared to raise rates by an additional 0.75 percentage points next year. The Fed also signaled it expects its rate will come down by the end of 2024 to 4.1%, and drop to 3.1% at the end of 2025. "This is considerably higher than expectations priced into financial markets, which are positioned for the federal funds rate to come back down to 3.9% at the end of 2023 and to 2.6% at the end of 2024," said Bill Adams, chief economist for Comerica Bank.
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